Insights

4 Tips to Take Your 401(k) to the Next Level

As a retirement income vehicle, the 401(k) is second in popularity only to Social Security – and the number of 401(k) millionaires is at an all-time high. But is a million dollars even enough for your retirement needs?

Just think of the numbers. People are living longer these days, and that number is only going up. If you retired at 62 and lived to 92, you’d have to cover three decades. A million dollars breaks down into an annual amount of about $30,000 over 30 years (not counting taxes, etc.). That’s money, but not a lot of money, and probably nowhere near the standard of living many of us are used to.

How can you take your 401(k) to the next level and not only strive to reach that million-dollar mark, but actually meet your retirement needs?

Optimizing your 401(k) is a mix of planning, saving for the future and self-awareness, but it’s simpler than you think. Let’s look at a few 401(k) planning basics to get you started.

1. Understand Your Plan

The best kind of money isn’t old, new or even tax-advantaged – it’s free money! If your employer has a 401(k) program, they probably have a matching plan. Know what that is and make sure you max it out. They’re essentially giving you money, which you never want to turn down.

There are a few options out there. Two of the most popular are Traditional and Roth 401(k), which are primarily different because of tax treatment. In the Traditional, you pay Uncle Sam when the money is taken out, in the Roth, you pay him before you put it in. Will you be in a higher tax bracket now or in retirement? Which works better for you in the long run?

So, the first of your 401(k) planning basics is to know what kind of program and matching opportunities your employer offers, and next you’ll want to think strategy.

2. Set it and Forget It

Albert Einstein said, “Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” I can’t disagree with genius there. The importance of compounding interest can’t be emphasized enough.

Let’s say I have $100,000 in my retirement fund and I make 5% interest. Then I have $105,000 gathering 5% interest in my account, and the next year I make $5,250. The math, despite Einstein’s interpretation, is really fairly simple. The wonder is that more people don’t take advantage of it.

Play the markets all you want, but an investment with this kind of consistency and predictability will be near impossible to find.

3. Tune Out the Noise

Inverted yield curve. Recession. Unemployment rates. Trade wars. The headlines will always throw emotional punches. Their motivation isn’t always to convey fact, it’s to sell newspapers. Once they hook you with a headline and you give up your $1.50, their job is done.

Remember the old maxim: “Time in the market is more important than timing the market.” Yes, be careful about the movements of global money, but make sure you’re trusting professionals – not a buddy shouting advice over a cubicle wall or a journalist trying to get readership. Sticking to your plan and riding out some – if not most – of these fluctuations is a safer bet in the long run.

Think of the months where there have been multiple fluctuations of one percent or less, but then by the end of the month, the markets are back up where they were. Then there are months where there’s only one move and it’s a dip of 2% that stays. Both of these scenarios are examples of volatility, but one sells newspapers and other is a lasting effect investors need to be aware of.

If you change your 401(k) or IRA investments every time there’s a new headline, you will drive yourself crazy and could lose big in the end.

4. Know Your Own Fingerprint

When you look at a picture of a fingerprint, you know what you are seeing – they have a fundamental shape and size. However, on closer inspection, each print for each person is radically different. Financial life is very similar: there are basics we can all share, but, at a certain level, each person’s journey is one-of-a-kind.

For example, at 27 years old with a relatively new 401(k) on your hands, you may want to invest in more aggressive funds because you have more time to recover. At 60, nearing retirement, your risk profile should be different because you will need that money to live on soon and you don’t have as much time to cover losses.

Engage with an advisor who offers tailored advice, not one-size-fits-all platitudes. Your plan has to be responsive to your goals, your values and your place in the life journey.

Not an Afterthought

Life gets busy. Between kids and grandkids, careers and everyday demands, an automatic withdrawal from your paycheck to a distant account is probably not on your mind much. But working on the structure of your retirement income will pay off in the end.

You don’t have to be on the phone with your advisor every week or check the stock ticker every morning, but a few meetings just to get on the right course will get you further than you can imagine.

Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty.

Asset Advisors

Follow Us

Headquarters

Subscribe to our commentary & blog:

First Name*

Last Name*

Email*

Phone Number*

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Forbes ranking is based on quality of practice, telephone and in-person interviews, client retention, industry experience, review of compliance records, firm nominations and quantitative criteria. Barron's rankings are based on data provided by over 4,000 of the nation's most productive advisors. Factors included in the rankings: assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. InvestmentNews Icons and Innovators award recipients were selected based on the broad definition of, those who have conceived new ideas and tools that have propelled the industry forward. Listing in this publication is not a guarantee of future investment success. This recognition should not be construed as an endorsement of the advisor by any client.

Investment advisory services offered through CWM, LLC, an SEC Registered Investment Advisor. Carson Group Partners, a division of CWM, LLC, is a nationwide partnership of advisors.

This site is published for residents of the United States only. Registered Representatives of Cetera Advisor Networks LLC may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Not all of the products and services referenced on this site may be available in every state and through every advisor listed. For additional information please contact the advisor(s) listed on the site, visit the Cetera Advisor Networks LLC site at www.ceteraadvisornetworks.com.

Copyright 2020 CWM, LLC. All rights reserved. This content cannot be copied without express written consent of CWM, LLC. Wealth Designed. Life Defined. is a registered trademark of CWM, LLC and may not be duplicated.

Essential cookies help make a website usable by enabling basic functions like page navigation and access to secure areas of the website. The website cannot function properly without these cookies.

Functionality cookies enable a website to remember information that changes the way the website behaves or looks, like your preferred language or the region that you are in.

Analytics cookies help website owners to understand how visitors interact with websites by collecting and reporting information anonymously.

Advertising. cookies are used to track visitors across websites. The intention is to display ads that are relevant and engaging for the individual user and thereby more valuable for publishers and third party advertisers.